Comcast enjoyed a great 2017, capping the year with a good fourth quarter in all but one of its primary businesses. Pay TV, spearheaded by the market-leading X1, returned to decline after a brief respite in 2016. Here are three lessons learned from Comcast’s poor pay TV results.

Chapter 1: A great interface is not enough (2:05)

Comcast X1 has a superb user interface with standout features like voice control and the Olympics Dashboard. However, this is not enough of a differentiator to get people to pay the high price for cable.

Around two-thirds of U.S. consumers have access to SVOD services, and a similar number use a connected TV. Apple TV, Samsung Smart TVs, Roku, Amazon Fire TV, and Android TV all have great interfaces and standout features like voice control and search. Service providers like Filmstruck also have interfaces as good as or better than anything Comcast can produce.

Chapter 2: Incremental entertainment spending going online (3:20)

When people have more time to watch television and are willing to spend more to do it, they are spending that extra money online.

In the past, Comcast has enjoyed a bump in subscriber signups in the fourth quarter as people bulk up on content for the holidays. For example, Comcast saw 200,000 more people sign up for service in Q4 2013 than in Q2, traditional a weak quarter for pay TV. That difference completely vanished in 2017. Comcast lost the same number of subscribers in Q2 and Q4.

Meanwhile, SVOD is starting to see a big Q4 bump in sign-ups. Netflix saw 2 million new US customers in Q4 2017 and DEG reports SVOD revenue increased 35% in the same quarter.

Chapter 3: Consumers value channels less than programmers (4:55)

Programmers think their TV channels are worth more, while we think their channels are worth less. Comcast was only able to raise video ARPU 1.3% in 2017, below the inflation rate of 2.1%. The company’s ability to raise rates is constrained by the availability of much cheaper options online. Netflix is just $10 a month, and consumers can sign up for a bundle of 20+ quality cable channels from Sling TV for just $20.

Programmers, on the other hand, continue to demand a lot more money for their channels from operators. Comcast paid 11% more in programmer license fees in Q4 2017 than in Q4 2016. Margins decreased by 5% due to this increase.

Simply put, we just don’t see as much value in big bundles of pay TV channels.